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Economics of Publishing

If you are thinking about self publishing then you will need to understand the economics of publishing. If you are thinking about working with a publisher, then it will be helpful for you to understand the economics of publishing.

In simple terms, for a book to take the journey from an idea in the author’s head to a physical product in the reader’s hand, it is going to travel through several stages, each of which has particular costs associated with it.

Economics of Publishing: Production

Whether you are working by yourself or with a big publishing house, in order to produce the book you will need to write the content, then get it laid out on pages, then get those pages printed and bound into a book. The author is responsible for generating the content and the payment for this is usually in the form of royalties, or a share of the profits that the book generates. If you are self publishing, then all profits will be yours, so that is your payment for writing the book. If you are working with a publisher, then the payment will be royalties in the form of a small percentage of the profits earned by the publisher.

Getting the basic manuscript laid out in a format from which it can be printed is a job that is usually carried out by an editor and designer. You may be doing these yourself if you are self publishing. In this case, there will be no specific cost to you. If you are hiring someone to do these jobs for you, then you will need to pay the fee they charge for their services. If you are working with a publishing house, then they will be paying a salary to the editors and designers, so this is be factored in as a cost of production.

When it comes to printing the book, you will need to pay a printer. I have talked about the option of using print on demand services in the article on self publishing. Publishing houses will work with established printers and will be able to do a large print run that helps to keep the per book cost as low as possible. If you are self publishing independently, then you will need to get quotes for printing and work out the best number of copies to print: the larger the print run, the lower the cost per book, but the more books you will have to sell before you make a profit.

Economics of Publishing: Distribution

If you are self publishing then distribution will be up to you – most likely you will be selling directly to consumers or maybe through individual shops, or possibly on amazon.

If you are working with a publishing company, then the economics of distribution become a lot more complicated. There will be a distribution chain that goes from publisher to wholesaler to shop to individual consumer. Each stage of the chain will want to make some money on the sale. Typically the wholesaler will expect a reduction of about 60% on the retail price, a shop will expect a reduction of about 30-35% on the retail price. In practical terms this means that a book that costs £10 for the reader to buy will have been sold to the wholesaler for £4, then on to the shop for £7 before the reader pays £10 to buy it. For the publisher, this means that the profit they make will be £4 less the production costs. The author will then receive a small percentage of the profit.

If you are self publishing then this chain can be important to understand. If you really want to reach a wide market, then you will want to make your book available through wholesalers as they can get it out to more shops than you would be able to contact on your own. However this means that the costs you paid (printing + editing/designer fees) must be low enough that you can afford to give the wholesaler a 60% discount and still set the retail price (the price the reader pays) at a competitive level. If your book costs £20 to print (this is not unreasonable for a small print run on an average sized beading book in today’s market), then you will have to look at selling it for over £50 if you want to use a wholesale distribution channel. Is someone really going to pay £50 for a beading book? Even if you decide to skip the wholesaler and know enough bead shop owners that you can go to directly, you will still need to make sure you can afford to let them have the book for 30% less than its retail price.

If you are working with a publisher, then understanding this chain gives you some idea as to the low value of royalties you can expect to receive. The reality is that the combination of increasing print costs and Amazon’s market dominance has squeezed publisher margins so hard that in some cases I have heard about, the publisher is actually making zero profit when they sell through Amazon. This will mean zero royalties for you, so if the majority of your books are sold through Amazon, you are really not going to see a lot of money for your hard work. How did this happen you may wonder? Simply the Amazon business model seems to me to be set up to promise high volumes of sales and it seems to me that some publishers forgot that high volume does not mean high profit unless there is some profit on every sale. The trouble is, once one publisher starts enjoying high volume sales through Amazon, it becomes tempting for others to want the same and so we find ourselves in an interesting market where the combination of Amazon’s discounting system and competition from ebooks which are cheaper to produce, is squeezing the profit out of traditional print books. Yet consumers still want print books as an ebook is not necessarily viewed as a good substitute for the experience of turning pages and that smell of the printed paper.

Before you lose heart, remember this is a snapshot in time and things are changing all the time. It is still not clear how the ebook will affect the print book in the long run or how publishers will adapt to the new pressures on the market. If you are wanting to get involved in the publishing industry, then do your own research – don’t just take my word for it: this is an interesting place to be and all of the above represents my own experience and opinion.